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Franchise Buying Guide

Word to the Wise

A few things to consider before tackling franchising
Presented by Guidant Financial
Guidant Financial specializes in helping entrepreneurs purchase new franchises using their retirement funds.

Last month, we discussed the opportunities franchising offers educated professionals. But we would be remiss not to warn you about several key things to be aware of-factors that could spell disaster if not well-thought-out.

If you're from the business or professional world, franchising can feel like a different universe. Scott Shane, economics professor at Case Western Reserve University in Cleveland, points out a couple of differences:

  • A franchise is both a job and an investment. Choose poorly, and your life is significantly impacted.
  • Owning a franchise doesn't mean you've got carte blanche. You still have a franchisor to report to, and you still have monthly royalties to pay.

If your strong point is education rather than experience, you should realize there are business skills necessary to running a franchise successfully. Assess what the franchise requires and whether you have those skills.

Many ex-corporate professionals may be enticed by the idea of multiunit franchises and consider running a mini-empire more appealing than a single unit. With so much capital involved, Shane warns that extra caution is warranted. "You could end up with a lemon if you don't look carefully," he says. Unfortunately, Shane adds, a small segment of the franchising sector looks to target ex-corporate execs-this segment could be more interested in unloading multiple units than running a franchise system and supporting franchisees.

But for the professionals who've done their homework and found the right fit, their investments result in passion and profit.

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This article was originally published in the July 2004 print edition of Entrepreneur with the headline: Word to the Wise.

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